aditya trading services

Tuesday, August 31, 2010

The Net Asset Value of a mutual fund is the total market value of the holdings of the mutual fund less its liabilities, such as expenses, management fees, etc. This is calculated on a daily basis. What this means is, if the mutual fund were to be dissolved or liquidated, by selling off all the assets in the fund, on that specified date, the Net Asset Value is what all the holders of the mutual fund will collectively own and will be given this amount in proportion to their holdings.
You can estimate your share of the holding of the mutual fund by the Net Asset Value per unit. This is the value represented by the ownership of one unit in the fund. It is calculated simply by dividing the Net Asset Value of the fund by the number of units.
Commonly Net Asset Value is always referred by its unit value rather than by the total Net Asset Value of the fund.

A mutual fund is managed by an Asset Management Company (AMC). Professional investors, who study where and when to make investments staff the AMC. The AMC creates a mutual fund, and invites the public to subscribe in the mutual fund with their investment. The funds collected are then invested by the AMC and are continually managed. Unlike other investments, the mutual fund itself is not traded nor does it offer guaranteed returns like a deposit. The mutual fund's Net Asset Value (NAV) determines the value of the investment. Investors redeem their investments in the mutual fund on the basis of the NAV from the mutual fund itself.
Equally, when investors want to buy, they buy into the mutual fund on the basis of the NAV.
The investments are managed by professionals who know more about deciding what to buy and sell and when to buy and sell
The risks and rewards of investments are spread across a large number of individuals, so losses are minimized
Access to funds is quick, since there is no need to sell or buy from the market

Mutual funds can be created for investing in anything. The investments that the mutual fund is going to make are discussed in the mutual fund's offer document. Typically, mutual funds invest in investment opportunities that have a trading market around it, such as stocks and shares, bonds and debentures, etc.

Saturday, August 28, 2010

A mutual fund is a pool of money put together by a group of investors, who stand to benefit or loose from that pool to the extent they have invested.
This pool is created since small individual investments have limited power and ability to influence the outcome of the investment. On the other hand, when the investment is large, the investor can have greater control on the outcome of the investment.
Thus, many small investors gather their individual small investments into a larger investment to take advantage of the opportunities offered by large investments. This is called a mutual fund.

What does the Mutual fund invest in?

Mutual funds can be created for investing in anything. The investments that the mutual fund is going to make are discussed in the mutual fund's offer document. Typically, mutual funds invest in investment opportunities that have a trading market around it, such as stocks and shares, bonds and debentures, etc.

How does the investors benefit?

The most important factors in choosing who to have a deposit with, is the safety of the deposit, and the rate of interest that is paid on the deposit.

How does a Mutual funds works?

A mutual fund is managed by an Asset Management Company (AMC). Professional investors, who study where and when to make investments staff the AMC. The AMC creates a mutual fund, and invites the public to subscribe in the mutual fund with their investment. The funds collected are then invested by the AMC and are continually managed. Unlike other investments, the mutual fund itself is not traded nor does it offer guaranteed returns like a deposit. The mutual fund's Net Asset Value (NAV) determines the value of the investment. Investors redeem their investments in the mutual fund on the basis of the NAV from the mutual fund itself.
Equally, when investors want to buy, they buy into the mutual fund on the basis of the NAV.
The investments are managed by professionals who know more about deciding what to buy and sell and when to buy and sell
The risks and rewards of investments are spread across a large number of individuals, so losses are minimized
Access to funds is quick, since there is no need to sell or buy from the market

What is Net Asset value?

The Net Asset Value of a mutual fund is the total market value of the holdings of the mutual fund less its liabilities, such as expenses, management fees, etc. This is calculated on a daily basis. What this means is, if the mutual fund were to be dissolved or liquidated, by selling off all the assets in the fund, on that specified date, the Net Asset Value is what all the holders of the mutual fund will collectively own and will be given this amount in proportion to their holdings.
You can estimate your share of the holding of the mutual fund by the Net Asset Value per unit. This is the value represented by the ownership of one unit in the fund. It is calculated simply by dividing the Net Asset Value of the fund by the number of units.
Commonly Net Asset Value is always referred by its unit value rather than by the total Net Asset Value of the fund.

How is Net Asset value calculated?

Net Asset Value is calculated as follows: Net Asset Value = (Market value of shares/debentures + Liquid assets/cash held, if any + Dividends/interest accrued) - (Amount due on unpaid assets + Expenses incurred but not paid + Management and other fees)
This is how the above are calculated
Valuation of marketable shares/debentures: The last or closing market price on the principal exchange where the security is traded
Valuation of illiquid and unlisted and/or thinly traded shares/debentures: For shares, this could be the book value per share or an estimated market price based on performance of other shares in the industry. For debentures and bonds, value is estimated on the basis of yields of comparable liquid securities after adjusting for illiquidity
Accrued dividends/interest: Companies announce dividends, however, pay it at a later date. If a dividend is announced, then the announced dividend is taken as the accrued dividend. Similarly, interest is payable on debentures/bonds in a pre determined frequency at a pre determined rate. Therefore for every passing day, interest is said to be accrued, at the daily interest rate, which is calculated by dividing the periodic interest payment with the number of days in each period. Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date.
Expenses including management fees, custody charges etc. are calculated on a daily basis. The management fees is as per the declaration in the offer document of the mutual fund.

It is simply buying and selling of equities. However, unlike other commodities, equities are not traded everywhere, and are traded only in special market places called exchanges.

What is an exchange?

An exchange is a mechanism through which buyers and sellers of equities are brought together. These days, this is largely electronic and done with computers. Investors cannot, however, participate directly in the exchange and can participate only through members of the exchange, popularly referred to as brokers.

How does the exchange works?

An exchange has pre-specified timings. During that time, all the members of the exchange link up to a central computer through their remote terminals. The members then place bids to buy equities, or make offers to sell equities. Other members who can match the bid or the offer confirm their acceptance, and the transaction is completed. Members of stock exchanges place bids and offers on behalf of their clients, who are the investors.

Why are brokers required?

Investing in equities is quite risky. The broker is a professional, who knows the risk and can advise the investor accordingly. Secondly, an exchange will become an unwieldy mechanism if the entire universe of investors were to go and start making bids and offers. Reducing the number of individuals is a way of keeping control. Third, equity trading can also be abused. To prevent these abuses, exchanges as well as the Government has a number of regulations in place. Restricting activity to the members of the exchange will enable the regulations to be followed, preventing abuse of the system.

How are shares traded?

Like in any other buying or selling, once the broker confirms the trade, if you are buying the share, you pay the broker the value of the shares and take delivery of the shares. If you are selling the shares, you hand over the equities to the broker and the broker will pay you for your shares.

When settlement does happen?

Each exchange has its own settlement period within which the entire process of delivery and purchase should be completed. Typically, the process is completed in a week to ten days time.

Which shares to Buy and sell?

An index is an indicator of how the stock market is doing on the whole. An index comprises a basket of stocks. The collective value of these stocks on a given date is taken and given a score of 100. From that day onwards, the value of these stocks is tracked and its score relative to 100 is computed. The stocks selected are based upon a number of parameters that the creators of the index decide. Equally, the valuation is also done using complex mathematical principles. Periodically, the list of shares used for computing the index also undergoes a change. These changes are decided by the index creators based on the parameters they have set for the stocks for inclusion.
An index shows whether the stock market, on the whole, is appreciating in value or declining in value.
The movement of the index itself is no indicator for individual shares. You may find that a particular share may be increasing in its price even when the index is down and vice versa. The index is only an indicator of the general trend
The common indexes in Indian stock markets are the SENSEX, the index for stocks listed on the Bombay Stock Exchange and Nifty, the index for stocks listed on the National Stock Exchange.

What is an index?

Buying and selling shares involve a fair amount of research. These involve assessing how well the company is managed, how the company is performing compared to others in the industry, how the industry itself is doing, the financial performance of the company, the interest of the lay public in the company, etc. It is best that you consult an expert in such analysis, before you decided to buy or sell a particular share. Such investment advice is also provided by your share brokers.

How Long to hold on the shares?

Historically, it has been demonstrated that investments in equities offer the best long term returns and hence the highest opportunity to enhance your capital. Thus, the longer you stay invested in the equity markets, the better will be your returns. However, this holds true for the equity market as a whole, and not necessarily for shares of individual companies. The value of shares of specific companies are subject to various pulls and pressures which could cause a share that is highly valued one day, to drop its value overnight, as a result of unpredictable factors ranging from Government policy to acts of omission and commission by the management of the company.
It is advisable that you periodically, at least once in a year, evaluate your holdings and decide whether to continue with them or change them.
However, one very important thumb rule which the professionals offer is, never to get emotional about a share. In other words, do not hold on to the share of a company whose value is declining, just because its history has been very good!

Are investment in shares safe?

Any investment is prone to a certain degree of risk. Shares, as a class of investment have the highest element of risk. The only services riskier than shares are lotteries and other games of chance. These risks arise as a result of factors described earlier.
However, today there is strong legislation, procedures and a regulatory authority - Securities Exchange Board of India (SEBI), which to a large extent prevents risk as a result of misleading the investing public.